3.2. Variables fúngicas
3.2.3. Longitud de micelio extraradicular (cm)
in order to form a view on the client’s year-end reserve figures. The client is a large international company with a variety of classes of business being sold in the US and some countries in Latin America.
After reviewing their methodology you note the following:
• Incurred claims data are used for projections.
• Projections are performed at a net of reinsurance level.
• For the Bornhuetter-Ferguson (B-F) method, the expected loss ratio (ELR) is calculated as a rolling average of the ultimate loss ratios, using the chain ladder method, for the previous three accident years.
• The incurred claims data from the Latin American countries is converted into $US prior to projecting. Due to concerns of possible hyper-inflation in these countries, only the latest diagonal is adjusted. All previous diagonals are equal to the data in $US from the previous year reserve calculations. This is done using the latest exchange rates and by converting the movements in paid and outstanding claims only.
(i) Comment on the advantages and disadvantages of this approach and highlight any recommendations that you would make to the client. [12] The company is writing some new books of business. For these classes the company has based the latest ELR on the underwriter’s view.
(ii) State the advantages and disadvantages of this approach, again providing any recommendations that you may have. [3] You have decided to re-project the following data for a motor book of business. You have been told that the claims inflation has been steady at about 5% for each year. You have no information about premium rate increases, but you can approximate this using the increase each year in the average premium per policy.
Year Earned Premium $000’s Earned Policy Years Incurred Claims $000’s Incurred Cumulative Development Factor Selected Ultimate Loss Ratio Selected Ultimate Loss 2002 11,750 1,150 8,765 1.000 75% 8,765 2003 13,000 1,275 10,350 0.960 76% 9,936 2004 12,500 1,125 9,235 0.940 69% 8,681 2005 13,250 1,050 9,500 0.920 66% 8,740 2006 15,250 1,125 11,250 0.975 72% 10,969 2007 17,650 1,265 9,575 1.520
(iii) State the key assumption being made when the increase in the average
premium per policy is used as the assumed premium rate increase. [1] (iv) Calculate the incurred B-F ultimate for the 2007 accident year with the ELR
based on the weighted average (by premium) of the last five accident years. [5] When looking at the summary list of reserves by country and class, you notice that there is a book of business called MisMass. You have not been provided with any data for this class; however from the summary list of reserves you can derive that the reserves have been estimated to be £142m and the discounted reserve figure for this book is £86m.
(v) Determine the implied Discounted Mean Term (DMT) using a discount rate of 5% per annum and hence comment on what this book of business may contain. [2] You have requested additional data from the company on MisMass to show how the reserve figures were derived.
(vi) State what reserving methods would be applicable for projecting the claims data for this book of business, and comment on any limitations of these
methods. [3]
[Total 26]
Faculty of Actuaries Institute of Actuaries
Subject ST3 — General Insurance
Specialist Technical
EXAMINERS’ REPORT
April 2008
Introduction
The attached subject report has been written by the Principal Examiner with the aim of helping candidates. The questions and comments are based around Core Reading as the interpretation of the syllabus to which the examiners are working. They have however given credit for any alternative approach or interpretation which they consider to be reasonable.
M A Stocker
Chairman of the Board of Examiners June 2008
Comments
Individual comments are shown after the solutions to each part question that follows.
Subject ST3 (General Insurance Specialist Technical) — April 2008 — Examiners’ Report
1
London Market Brokers:Act as specialist intermediaries e.g. Lloyd’s broker, reinsurance broker Are agents of the insured
Organisational aspects of their work are important as they are often international organisations and clients and the insured are often in different countries/time zones
Place business using the slip system
Prepare the appropriate slip, which shows the main features of the risk to be insured,
in a standard format
Prepare additional information relating to the risk at the request of the underwriter and
further technical assistance
Present the slip to a lead underwriter, who on the basis of the slip and additional
information will set the rate and terms Present the lead underwriter’s rate and terms to the insured for approval The lead underwriter with the broker indicates the proportion of the risk (line) he is prepared to accept (by signing and stamping the slip) If the insured agrees to the rate and terms, the broker will approach the follow market to place the remainder of the risk on the lead rate and terms Follow underwriters will sign their lines and stamp the slip in a similar fashion to the
lead (– they act as co-insurers)
The broker continues until the risk has been over-placed The broker, in agreement with the insured, signs down the lines of the underwriters so
they total 100%
If the broker fails to place 100% of the risk, the insured may retain the remaining
proportion or more typically the broker will seek to renegotiate better terms Collecting premiums from the insured and paying claims
Advising and negotiating the best terms for the insured
The broker also provides an admin role e.g. preparing policy documentation
Comments on Q1: A bookwork question on which many candidates scored well.
2
(i) Increasing advertising spend will increase overall expensesHowever, if it is a successful campaign with high sales volumes then it could decrease expenses per policy as the existing fixed expenses are spread more thinly over the larger book of business.
Increasing profit loading will increase profit per policy.
However this will result in higher premiums and may reduce volumes of
business to a level that results in lower total profit The overall effect on total profit will depend on the effect on the volume of business and hence an assumption around volume of business is needed The overall effect on profit will also be impacted by changes in the mix of business resulting from varying these two items
The overall effect on profit will also be different depending on the mix of new business and renewals
(ii) In terms of the model total profit is premiums less expenses less claims Also any valid alternative profit formula e.g. (per policy profit load × policy volume)
Subject ST3 (General Insurance Specialist Technical) — April 2008 — Examiners’ Report
In addition, obtain data from comparison web sites to help determine where the premium currently sits in relation to the rest of the market in order to
determine sales volumes
Other expenses will be fixed or overheads that are independent of sales
volume and this will also complicate the total profit calculation Analyse effect on volumes in different groups e.g. age, sales channel or social economic group
Consider correlations between the profit loading and marketing spend Produce a set of one-way or two-way analysis tables for each selected profit loading showing how total profit varies by marketing spend, i.e. elasticity
and produce a set of one-way or two-way analysis tables for each selected marketing spend showing how total profit varies by profit loading Select the combination of factors which maximises total profit Alternatively given that we have an output which is correlated to two variables we could fit a Generalised Linear Model (GLM) to the model outputs The GLM could then be used to maximise the total profit Set up the model such that the factors can be easily interpreted and monitored
Comments on Q2: Most candidates acknowledged that changes in costs and profit loading would affect volumes and many picked up full, or nearly full, marks on part (i). However, in (ii), students tended to trot out the points given in the core reading without thinking through and applying to the specifics of this particular question.
3
(i) + Promotes confidence in actuaries’ work, by ensuring that actuaries maintain a high level of training and expertise + Being able to demonstrate compliance protects an actuary against litigiouscriticism
+ Protects the public by making actuaries accountable + Promotes consistency and greater scrutiny of professional judgments + This in turn can reduce work loads e.g. consistent processes make it easier to review/pick up a predecessor’s work
+ Enables fellow actuaries to be challenged + Provides actuaries with a point of reference for clarification
+ Consistent with some other professions – Above advantages are only applicable if the guidance is well written and not open to interpretation
- Guidance will never be fully comprehensive - Guidance can become out of date
– Additional bureaucracy and time-consuming – Infrastructure needed if not already in place, e.g. overseeing boards
– Additional costs
– Potentially restricts use of individual judgment – Danger of setting standards that are too high/unrealistic, e.g. listing and
justifying every incremental development factor assumption in a reserving
exercise
Comments on Q3(i): ) A few candidates misinterpreted “guidance” to mean
“regulation”. Many students failed to generate many distinct points and so tended to score badly on this part.
Subject ST3 (General Insurance Specialist Technical) — April 2008 — Examiners’ Report
(ii) State the methods used when selecting ultimate for each class of business, type
of reserves and year of account
Detailed description of the methods used A detailed explanation of the methods underlying assumptions
A list and discussion of the key assumptions and judgments used A description of the process by which the assumptions have been identified Highlighting any illustrations based on assumptions that the are not regarded as appropriate
The rationale for selecting the methods used in producing results and for each method a statement of key assumptions Where the results of different methods or assumptions presented in the report differ significantly, comments on the likely reasons for the differences and an explanation of the basis for the choice of results Sufficient data and other information to understand the key assumptions made and the process by which the assumptions have been identified
Comments on Q3(ii): Many candidates failed to restrict their answer to the “methodology and assumptions” section as required and therefore wasted time writing unnecessary points.
(iii) Introduction
Definition of terms
Purpose and scope
Information and data used
Analysis of emerging experience (comparison with last year) Business conditions over the year
Results
Sensitivity testing of assumptions used
Uncertainty
Comments on Q3(iii): There was a mixed performance for this part of the question with some candidates scoring well and others answering poorly.